MDM - Switch to Sell

Published:

8 Dec 2010 15:38 ET

With the fail-safe triggered at 2596 on the NASDAQ Composite, the model has switched to a sell signal. Yesterday's buy signal was short lived, but worth the small risk taken, about 1% on the NASDAQ Composite for those who bought at the open yesterday then sold at today's fail-safe. QE2 is still alive and well, and the market could have continued higher. But for the time being, this pullback may very well also be short lived before the model switches back to neutral, or we get a proper follow through day which would trigger a buy signal.

The new target fail-safe is 2625 on the NASDAQ Composite. This does not automatically mean the model will switch out of its sell signal if 2625 is hit. There are other considerations which may prompt the model to give the NASDAQ Composite a little extra room to move higher before switching out of its sell signal. So stay tuned.

Keep in mind that, with the exception of May 2010, these pullbacks since March 2009 have been short lived, so given precedent, we would not be surprised to see the market find its footing soon, and resume its uptrend. QE2 is alive and well, and with the Bush tax cuts one step closer to being extended for another 2 years, a resumption of the uptrend should occur in due course. That said, our opinions do not matter. Price/volume action of the major indices and leading stocks rule the day.

Inverse ETF Suggestions:

Precious metals had another reversal yesterday and this is certainly not the first time. As long as the federal reserve continues to print money and QE2 continues its course, the long term uptrends in the precious metals should continue. Of course, pullbacks are part and parcel of uptrends, and based on today's market action, it would not be surprising to see.

Here are a few suggestions of inverse ETFs we believe will outperform in the current sell signal environment given the situation in China triggering a short to intermediate term top in commodities:

1-times

SH (inverse S&P 500 - this index contains commodities-related stocks)

FXP (inverse China - play on potential rate hike)

2-times

BZQ (inverse Brazil - play on commodities short to intermediate term top)

AGQ (inverse silver though has already come off hard off the top)

DGP (inverse gold)

3-times

SPXU (inverse S&P 500)

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